Tribune analysis: Average raise in 2009-10 for CEOs of 18 nonprofits double that for private-industry workers

Matthew Walberg and Joe Mahr, Chicago Tribune reporters

During the height of the recession, employees at one of the area's biggest nonprofits were not supposed to get pay raises greater than 6 percent — but that didn't apply to the CEO.

The board for the Community and Economic Development Association of Cook County gave CEO Robert Wharton a10 percent raise in 2009, followed by a 15 percent raise in 2010, boosting his total compensation to$275,000 to run a nonprofit that gets more than 90 percent of its money from taxpayers.

Wharton's raises are part of a larger trend in the pay of executives whose groups rely significantly on money from state government — a trend that has drawn fire from critics concerned that taxpayers are being gouged.

A Tribune analysis of financial filings of 18 such nonprofits found that their executives received an average of 4.3 percent in pay raises in 2009 and 2010, when the economy was sputtering. That's double the average compensation boost for private-industry workers, according to federal wage data.

Many of these nonprofit executives already earn far more than the top state officials who dole out tens of millions of dollars to these agencies every year. At one nonprofit that aims to help the working poor, the director had her pay nearly double in eight years, to about$340,000.

Supporters defend the raises as comparable to for-profit CEOs, who can receive generous salary increases even in bad times if their leadership is deemed extraordinary and in demand.

But Illinois officials have joined a national trend of reconsidering such salaries, with one major state agency saying it's working on a plan to limit how much of an organization's administrative costs and executive pay can be covered by public money.

"The Department of Human Services strongly disagrees with the practice of nonprofit executives receiving such high salaries that are primarily subsidized by tax dollars, especially during the current fiscal crisis," spokeswoman Januari Smith Trader said in a written response to the Tribune's findings.

That concern is raised as other states, including Massachusetts, consider ways to limit compensation.

"I think, ideally, there ought to be very strict federal guidelines, but I think in states with heavy concentrations of nonprofits, like Massachusetts and Illinois, the oversight is grossly inadequate," said Massachusetts state Sen. Mark Montigny, a Democrat pushing a proposal there.

"The public is angry," Montigny said, "and when they see this abuse, they want their pound of flesh."

The top raises

Illinois relies greatly on nonprofits to provide social services, medical care and other assistance to the needy. In most cases, taxpayer dollars, in the form of contracts or grants, cover the services these organizations provide, as well as at least some administrative costs.

Nonprofits engaged in this publicly funded work often base their top executives' compensation on what they say similar nonprofits pay. An executive's salary can stay flat or jump depending on which organizations are used as benchmarks.

The Internal Revenue Service requires nonprofits to disclose whether they base salaries on a review of what other agencies pay. But they don't have to publicly reveal the names of those agencies, or how they reached their decision. Another obstacle to transparency is that it can take up to two years for the public to obtain such basic tax data. The freshest nonprofit data available is from calendar year 2010.

The Tribune took that pay data and analyzed it for executives of nonprofit organizations with budgets greater than $10 million, with at least 75 percent of their funding coming from the state. The newspaper focused on 18 organizations whose top executive remained the same in 2009 through 2010 — enough time to look at two typical cycles of raises during the heart of the recession.

Among the recipients of the most generous raises:

•James Hogan, with Cornerstone Services Inc. The nonprofit serves the physically and mentally disabled in Will and Kankakee counties. He received a 1 percent raise in 2009 and a 25 percent raise in 2010, taking his total pay to in excess of $244,000. Those raises came during a time when Cornerstone publicly lamented the difficult fiscal climate of nonprofits, particularly those receiving government grants.

Hogan, who retired last year, could not be reached for comment. But Cornerstone's board said in a statement that officials set Hogan's salary after reviewing his performance and studying pay for comparable CEOs.

•Mary Hollie, with Lawrence Hall Youth Services. The organization provides residential care and other services to at-risk youths in the Chicago area. Hollie received a 7 percent raise in 2009 and a 9 percent raise in 2010, ending the year with nearly $284,000 in total pay.

In a written statement, board president Jeff Singleton said Hollie's pay was based on performance and comparable executives' pay, a process that "retains the talent we need to successfully lead an organization operating in a complex — and often turbulent — field."

•Wharton's massive nonprofit, CEDA, helps run or oversee programs to aid the poor or unemployed, from job training to home weatherization.

At the time Wharton was getting his 10 and 15 percent raises, he was accused of bilking a former secretary with dementia out of more than $60,000. He denied wrongdoing, but a court ordered him to pay her back.The board fired him from the $275,000-a-year job earlier this year after the Tribune wrote about the case.

When asked about Wharton's raises, a CEDA spokeswoman said employees cannot get more than 6 percent increases. Informed that Wharton's pay rose higher, the spokeswoman referred questions to board president Lisa Anthony, who said she would ask a spokesperson to respond. No one did.

Conversely, some nonprofit CEOs took pay cuts, or slight raises, including Martha Warford.

Warford oversees the Beverly Farm Foundation in downstate Godfrey, which runs an 80-acre community for nearly 400 developmentally disabled residents. It has a budget comparable to Cornerstone and Lawrence Hall's, but Warford was paid about $106,000 in 2010. That was after receiving a 1.1 percent raise in 2009 and a 0.6 percent raise in 2010.

Warford said she declined offers from her board to significantly raise her pay because the nonprofit's budget was too tight.

"If I can't provide a decent increase for my employees, I don't feel that it's justified that I get one," she said. "And I'm not in this for the money."

Top pay

Among the 18 nonprofits the Tribune studied, 14 executives made more in 2010 than the $150,000 threshold for state Cabinet-level officials who oversee the contracts given to the organizations.

Nonprofit officials argue that it's not a fair comparison, because public-sector employees qualify for lucrative pensions and other benefits that nonprofit executives might not get. Even a longtime advocate for lean government agreed that the $150,000 standard alone might be unfair.

"It's not a black-and-white issue," said Tom Johnson of the Taxpayers' Federation of Illinois. "It's hard to say that you shouldn't pay these executives more than $150,000 if they're competing in an industry sector to get appropriate talent."

Nonprofits are left to interpret loose IRS guidelines that say their executives should have pay based on the market. And that can be abused, said Lindsay Nichols, a spokeswoman for the nonprofit charity watchdog GuideStar.

Nichols' group says executive pay should be based on market rates, and it has done extensive studies on executive compensation, most recently for 2009. GuideStar provided an Illinois-specific analysis to the Tribune that, for example, found about $278,000 was the average pay that year for CEOs whose nonprofits focused on human services and had a budget of $25 million to $50 million.

The Chicago-based Safer Foundation fits that criteria. It helps former convicts get jobs and job training, and in 2009 it paid its CEO, Diane Williams, more than $350,000 in total compensation.

In a written statement, the board members who approve Williams' compensation lauded her efforts, although they kept her pay relatively flat for 2010.

"Diane Williams is worth every dollar we pay her and more, and the taxpayers of Illinois have received a tremendous return on their investment in the programs Safer Foundation manages on their behalf," the board said.

Also fitting the GuideStar criteria is Chicago-based Illinois Action for Children, which primarily helps working poor families obtain child care. Its CEO, Maria Whelan, had her pay skyrocket since taking over in 2001.

In 2002, Whelan was paid $179,000. By 2010 she received about $340,000, a cut from the nearly $349,000 she was paid in 2009.

Her 2009 pay put her morethan 25 percent above the GuideStar average for a nonprofit of that size and type in Illinois, but a spokesman for the nonprofit, Adam Summers, said it used an outside firm that studied comparable CEO pay. Summers characterized Whelan's pay as "competitive but on the conservative side in relation to our market competitors."

Raising questions

The Massachusetts Senate has twice passed a bill, including this year, that set caps on executive pay at all nonprofits, not just those receiving public money, and not just large ones.

"A lot of the abuse is actually going on at the smaller organizations because the salaries are disproportionately higher," Montigny said. "It's all of these midlevel organizations that fly below the radar where their executives might be making two or three times the governor's salary and there's no accountability."

And in Florida, reports of exorbitant pay for some nonprofit executives sparked a proposal to limit the pay of those whose agencies rely on public funding.

But only New York has set caps, after Gov. Andrew Cuomo this spring ordered state agencies to limit pay at nonprofit vendors to $199,000, although nonprofits can raise private money to boost the pay or seek special permission from the state.

In Illinois, no caps have been imposed.

State Sen. Dave Syverson, R-Rockford, sits on committees that oversee appropriations and grant-issuing departments. The state, he said, should question pay on a case-by-case basis. But he said some nonprofit CEOs might be worth the money if they can raise private cash to cover the higher salary and save taxpayers money.

"The state has the ability to ask some questions as to how they can afford to pay these kinds of benefits in this climate," Syverson said.

In the absence of legislation, one of the biggest contractors with nonprofits, the Department of Human Services, has begun asking those vendors it funds through grants or bidded contractsto submit additional audits.

The state agency also is "reviewing and updating various policies to address the issue of executive compensation," Smith Trader said.